Is 3 the magic number for Vodafone?

September 10, 2009

(By Sarah Young, Acquisitions Monthly)

The proposed £7bn merger of Orange and T-Mobile in the UK may be too much for Vodafone to bear, pushing it into a tie-up with Hutchison Whampoa’s mobile businesses 3, not just in the UK but also in Italy.

Indeed, earlier this year, Vodafone merged its operations with those of 3 in Australia.

If Orange and T-Mobile ink a deal by October, as they say they will, and the competition watchdogs approves it, 3 will find itself as the UK’s fourth largest mobile operator with just 8% of the market. Vodafone will be pushed back into third place – something one of the world’s largest mobile phone operators could find difficult to stomach in its home market.

Its third place position will make it hungrier for 3 than Telefonica’s O2, which currently holds the top mobile spot in the UK. Sources said that Vodafone was more committed than O2 to buying T-Mobile UK.

Hutchison is also considering a possible merger of its 3 Italia operation, but has ruled out a deal with Italian number three player Wind. Perhaps Vodafone, the number two player in Italy, could also look to do a deal with 3 in that country’s market.

Despite the fact that losses at its 3G mobile operations have narrowed, questions continue to be asked about Hutchison’s commitment to the mobile industry in the long term. The Hong Kong-based group will need to look carefully at its options but it’s clear that in the UK a successful Orange and T-Mobile merger will leave 3 looking more vulnerable than ever.

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